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Netflix finally admits that binge-watching is a thing

Netflix just confirmed that people really do binge on its original programming, watching full seasons faster than traditional TV.

In its third-quarter earnings report, the company said its original shows experience “more viewing in the early months of a show’s debut” than was anticipated. That vague statement is a nod to people binging on multiple episodes at a time and finishing shows at a rapid clip. Netflix premieres its original programs in one full swoop, releasing all episodes of a season at once, rather than parceling them out.

Reed Hastings, the company’s chief executive, recently tried to downplay the effect of binge-watching. “Occasionally they binge,” he said, “and that makes a great story, but most of the time it’s just a single episode like you read the chapter of a book.” Today’s disclosure suggests that binging is more prevalent, at least for Netflix’s original shows like House of Cards and Orange Is the New Black.

The company, which has been reluctant to discuss user viewing habits, made the binge-watching disclosure in an obscure way. As we predicted, Netlix said it will change the way it spreads out, or amortizes, its expenses for original shows. It’s a somewhat obscure accounting question that nonetheless has a lot to do with how Netflix is revolutionizing how people watch television.

Here’s the relevant passage in Netflix’s earnings release (pdf):

When we started with original content we didn’t have specific data about viewing patterns over time for content that premieres on Netflix. We decided to use straight line amortization based on our experience with TV series from other networks. Now we have more specific viewing data for original content which shows more viewing in the early months of a show’s debut, so we are accelerating the amortization of such content commensurately. We’ll continue to monitor the viewing patterns and adjust the amortization schedule as appropriate.

Amortization allows Netflix to spread out its spending on programming, so it doesn’t show up all at once on the company’s balance sheet. For its original shows, the company had been amortizing the cost evenly over four years (more, if there are multiple seasons). Now it will record more of the expenses upfront, in recognition of the viewing patterns.

That could lead to higher expenses than previously forecast. Netflix spends a lot on programming, but most of that expense hasn’t yet been amortized.

But more importantly, the accounting change provides a rare window into Netflix viewing patterns as the company upends how TV and movies are consumed. Netflix also said that prison comedy Orange Is the New Black will be the company’s “most watched original series ever” but, as always, didn’t release any audience numbers. It simply said the show “enjoys an audience comparable with successful shows on cable and broadcast TV.”

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